Oğuzhan Karakaş (Carrol School of Management)
This seminar was due to take place on Thursday 26th January but was cancelled. There is no more information given.
Bart Lambrecht (Cambridge Judge Business School) (CERF)
About Bart Lambrecht
Title: The Dynamics of Investment, Payout and Debt
Abstract:
We develop a dynamic agency model of a public corporation. Managers underinvest because of risk aversion and a binding governance constraint. They smooth rents and payout. They do not exploit interest tax shields fully. The interactions of investment, debt and payout decisions can change drastically depending on managers' preferences. Managers with power utility set investment, debt and payout proportional to the firm's net worth, generating a constant debt ratio. With exponential utility, investment decisions are separated from decisions about debt and payout. More profitable firms become cash cows and less profitable firms accumulate debt, as in a pecking order model.
Date: Thursday 26th January, 13:00 - 14:00
Event Location: Room W4.03, Cambridge Judge Business School
Zhi Da (University of Notre Dame)
About Zhi Da
Title: Harnessing the Wisdom of Crowds
Abstract:
We examine the impact of herding on the accuracy of consensus earnings forecasts from a crowd-based forecast platform (Estimize.com). By tracking user viewing activities, we monitor the amount of information a user views before she makes an earnings forecast. We find that the more public information a user views, the less weight she will put on her private information. While this improves the accuracy of each individual forecast, it reduces the accuracy of the consensus forecast, since useful private information is prevented from entering the consensus. Predictable errors made by “influential users” early on persist in the consensus forecast and result in return predictability at earnings announcements. To address endogeneity concerns related to information acquisition choices, we collaborate with Estimize.com to run experiments where we restrict the information set for randomly selected stocks and users. The experiments confirm that “independent” forecasts lead to a more accurate consensus and convince Estimize.com to switch to a “blind” platform from November 2015. Overall, our findings suggest that the wisdom of crowds can be better harnessed by encouraging independent voices from the participants.
Date: Thursday 9th February, 13:00 - 14:00
Event Location: Lecture Theatre 1, Cambridge Judge Business School
Agostino Capponi (Columbia University)
About Agostino Capponi
Title: Bail-ins and Bail-outs: Incentives, Connectivity, and Systemic Stability
Abstract:
We analyze the stability of an interbank network, in which rescues in the form of subsidized bail-ins or public bailouts can be coordinated to stop financial contagion. The coordination of a rescue consortium between a benevolent social planner and the banks is modeled as a sequential game. We show that the equilibrium welfare losses are generically unique, depending heavily on the network structure, which influences whether or not the social planner's threat to not intervene is credible. We provide conditions under which the threat is credible and characterize the optimal intervention plan. Our analysis shows that sparsely connected networks may enhance financial stability in two ways: (i) a smaller amplification of the shock without intervention may enhance credibility of the social planner's threat and (ii) because default resolution costs are concentrated, the creditors of defaulting banks can be incentivized to make large contributions to a subsidized bail-in. This may make a sparsely connected network socially preferable over a more densely connected network, even if the densely connected network is financially more stable in the absence of any intervention.
Date: Thursday 23rd February 13:00 - 14:00
Event location: Room W4.03, Cambridge Judge Business School
Professor H. Peyton Young (University of Oxford)
Title: Contagion in the CDS Market
Abstract:
This paper analyzes counterparty exposures in the credit default swaps market and examines the impact of severe credit shocks on the demand for variation margin, which are the payments that counterparties make to o set price changes. We employ the Federal Reserve's Comprehensive Capital Analysis and Review (CCAR) shocks and estimate their impact on the value of CDS contracts and the variation margin owed. Large and sudden demands for variation margin may exceed a firm's ability to pay, leading some firms to delay or forego payments. These shortfalls can become amplified through the network of exposures. Of particular importance in cleared markets is the potential impact on the central counterparty clearing house. Although it is a central node according to conventional measures of network centrality, the CCP contributes less to contagion than do several peripheral firms that are large net sellers of CDS protection. During a credit shock these firms can suffer large shortfalls that lead to further shortfalls for their counterparties, amplifying the initial shock.
Date: Thursday 9th March, 13:00 - 14:00
Event Location: Room W4.03, Cambridge Judge Business School
Erwan Morellec (SFI)
About Erwan Morellec
Title: Product Market Competition and Option Prices
Abstract:
Most firms face some form of competition in product markets. The degree of competition a firm faces feeds back into its cash flows and affects the values of the securities it issues. We demonstrate that, through its effects on stock prices, product market competition also affects the prices of options on equity and naturally leads to an inverse relationship between equity returns and volatility, generating a negative volatility skew in option prices. Using a large sample of U.S. equity options, we provide empirical support for this finding and demonstrate the importance of accounting for product market competition when explaining the cross-sectional variation in option skew.
Date: Thursday 4th May, 13;00 - 14:00
Event Location: Room W4.03, Cambridge Judge Business School
Ulf Axelson (London School of Economics and Political Science)
About Ulf Axelson
Title: Sequential Credit Markets
Abstract:
Entrepreneurs who seek financing for projects typically do so in decentralized markets where they need to approach investors sequentially. We study how well such sequential markets allocate resources when investors have expertise in evaluating investment opportunities, and how surplus is split between entrepreneurs and financiers. Contrary to common belief, we show that the introduction of a credit registry that tracks the application history of a borrower leads to more adverse selection, quicker market break down, and higher rents to investors which are not competed away even as the number of investors grows large. Although sequential search markets lead to substantial investment inefficiencies, they can nevertheless be more efficient than a centralized exchange where excessive competition may impede information aggregation. We also show that investors who rely purely on public information in their lending decisions can out-compete better informed investors with soft information, and that an introduction of interest rate caps can increase the efficiency of the market.
Date: Thursday 18th May, 13:00 - 14:00
Event Location: Room W4.03, Cambridge Judge Business School
Katrin Tinn (Imperial College London)
Title: Learning Through Crowdfunding
Written in collaboration with Gilles Chemla.
Abstract:
Abstract: We develop a model where reward-based crowdfunding enables firms to obtain a reliable proof of concept early in their production cycle. The information gathered from a subsample of backers through a fixed length pre-selling campaign enables firms to update their beliefs about the preferences of all future consumers. This creates a valuable real option as firms invest only if updated demand is high. Further, such updating mitigates moral hazard: the higher the funds raised, the lower the firms' incentives to divert them. Our results are consistent with stylized facts and provide new testable implications.
Date: Thursday June 1st, 13:00 - 14:00
Event Location: Room W4.03, Cambridge Judge Business School
Geert Bekaert (Columbia Business School)
About Geert Bekaert
Title: Macro Risks and the Term Structure of Interest Rates
Abstract:
We use non-Gaussian features in macroeconomic data to identify aggregate supply and demand shocks for the US economy, while imposing minimal economic assumptions. Recessions in the 1970s and 1980s were driven primarily by supply shocks while later recessions were driven primarily by demand shocks. The Great Recession exhibited large negative shocks to both demand and supply. We then estimate "macro risk factors" that drive "bad" (negatively skewed) and "good" (positively skewed) variation for supply and demand shocks. The Great Moderation, a general decline in the volatility of many macroeconomic time series since the 1980s, is mostly accounted for by a reduction in the good variance risk factors. In contrast, the risk factors driving bad variance for both supply and demand shocks, which account for most recessions, show no secular decline. Finally, we find that macro risks significantly contribute to the variation in yields, bond risk premiums and bond return variances. While overall bond risk premiums are counter-cyclical, an increase in demand variance is associated with lower risk premiums on bonds.
Date: Thursday 15th June, 13:00 - 14:00
Event Location: Room W4.03, Cambridge Judge Business School
Hui Chen (University of Zurich)
About Hui Chen
Title: Professor Hui Chen, University of Zurich
Abstract:
Stock price often provides firms with new information, which can be used in the firms' subsequent real decisions. We examine how this informational feedback from the financial market affects a myopic firm manager's incentive to misreport, and how the misreporting further affects the firm's price and value. We find that the manager overstates his report more in the presence of feedback, but this misreporting brings forth both positive price and real effects for the firm. Intuitively, overstating the report encourages information production in the market because (a) it renders accounting reports less reliable as a source of information, and (b) investors expect higher trading profits from larger capital investment. The new incremental information improves investment efficiency when it is revealed to the firm manager through trading and used in the firm's subsequent investment decisions. As a consequence, the capital investment is higher when there is feedback effect.
Date: Thursday 12th October, 13:00 - 14:00
Event Location: Room W4.03, Cambridge Judge Business School
Matthew Elliott (University of Cambridge)
Title: Firebreaks and Risk-Shifting in Financial Networks
Abstract:
Financial connections hedge risks, but also propagate large shocks. We characterise socially optimal financial networks in the presence of this tradeoff. These networks divide banks into groups, with strong connections within groups but weak connections between groups. The weak connections create firebreaks, which limit the spread of contagion. When financial distress costs are below a certain threshold, socially efficient networks cannot form in equilibrium. Shareholders engage in risk-shifting by altering financial connections—thereby increasing equity value, but also raising the likelihood of contagion. Equally, socially efficient networks are an equilibrium when financial distress costs are above this threshold. Contagion becomes so costly that banks are not willing to take the other side of a risk-shifting trade.
Date: Thursday 26th October, 13:00 - 14:00
Event Location: Room W4.03, Cambridge Judge Business School
Ilona Babenko (Arizona State University)
About Ilona Babenko
Title: Do CEOs Affect Employees' Political Choices?
Abstract:
We analyze how the political preferences of CEOs affect their employees’ campaign contributions and electoral choices. We find that employees donate almost three times more money to CEO-supported political candidates than to candidates not supported by the CEO. This relation also holds around CEO departures, including plausibly exogenous departures due to retirement or death. CEO influence is strongest in firms that explicitly advocate for political candidates and firms with politically connected CEOs. We also find evidence that CEO influence increases political disagreement among members of the same household, which may be welfare-decreasing. Finally, employees are more likely to vote in elections in those congressional districts where CEOs are more politically active. Overall, our results suggest that CEOs are a political force.
Date: Thursday 9th November, 12:45 - 13:45
Event Location: Room W2.01 Cambridge Judge Business School
Michael Brennan (University of Manchester)
About Michael Brennan
Title: Expected Returns and Risk in the Stock Market
Abstract:
In this paper we present new evidence on the predictability of stock returns, and examine the extent to which time variation in expected returns on the market portfolio and other portfolios is due to time variation in the risk exposure of these portfolios or due simply to mispricing or sentiment. In doing this we develop two new models for the prediction of stock market returns, one risk-based, and the other purely statistical; both models rely on extracting information from past returns of portfolios. The pricing kernel model expresses the expected excess return as the covariance of the market return with a pricing kernel that is a linear function of portfolio returns. The discount rate model is based on the log-linea present value model od Campbell and Shiller and predicts the expected excess return directly as a function of weighted past portfolio returns. For aggregate market returns the two models provide independent evidence of predictable variation in returns, with R2 of 5-8% for quarterly returns and 8-17% for annual return. For spread portfolio returns, such as HMZ and HML, the story is different and we find considerable evidence of predictability from the discount rate model that is not captured by the risk based model , and the expected returns on these spread portfolios are found to be strongly related to measures of sentiment.
Date: Thursday 23rd November, 13:00 - 14:00
Event Location: Room W4.03, Cambridge Judge Business School